Benefits of Unincorporated Associations
The main over-arching theme of nonprofits is that they are “mission driven” enterprises that benefit the public in some way. Some individuals serve their community by offering their time to existing nonprofit organizations that have a long history and a clear mission, while others may come together in a more informal legal structure called an unincorporated association (“UA”).
Let’s use the following scenario to show the benefits of forming a UA: You’re child plays the trumpet for the high school marching band. Due to the band’s award-winning season, the school has been asked to march in the Rose Bowl parade next January. Unfortunately, the school doesn’t have any money in the budget for this extra trip, which means you and the other parents have about 10 months to raise the necessary funds to get the band kids to Pasadena. The parents casually form the “Parents for Pasadena” group which will ultimately ask for donations from the community to get their kids to the Rose Bowl Parade. Here are 3 main reasons why a UA is a great way for the Parents for Pasadena to raise the money:
No real paperwork: Because UAs are informal groups coming together to benefit the public (in this case, the high school band), there is no paperwork to make the group “official” in the eyes of the government. This also means that they don’t need any initial capital to be able to pay filing fees or obtain permits from the local government. Since the band parents are raising money for an educational purpose, Parents for Pasadena can be classified as a Section 501(c)(3) organization without filing any paperwork with the IRS. A 501(c)(3) organization is exempt from Federal income tax and donations are tax-deductable.
No hierarchy: There’s no doubt that a group like Parents for Pasadena needs to be organized to ensure they reach their fundraising goal. Each member should know what’s expected of him/her in terms of how they can best serve the group; however, Parents for Pasadena don’t need to formally appoint a board of directors like nonprofit corporations are required to do. They also don’t need to create and submit bylaws or a constitution. Bear in mind, however, that because an unincorporated association is not a separate legal entity, its members generally can be personally liable for its debts and liabilities. And although California provides some limited liability to nonprofit association members; it is not as good as the protection obtainable from a nonprofit corporation.
One [common goal] and done: The only reason this UA was created was to raise money to fund the marching band’s trip to the Rose Bowl. Once the money is raised and the buses and hotels are paid for, the group can disband without any paperwork.
It is best to consult with an attorney before creating a nonprofit, no matter how big or small your goals are. If you’d like more information on unincorporated associations, other forms of nonprofit enterprises, or have questions about nonprofit corporate law in general, please reach out to Rosana Herrera-Ortega, a San Diego corporate attorney, to set up a consultation.